"You can fool some of the people all of the time, and all of the people some of the time, but you can not fool all of the people all of the time."–Abraham Lincoln

Deutsche Bank (DB) surprised its shareholders and the financial world with a hefty $3.6 billion in writes-offs for the last quarter.

According to Reuters, "Deutsche listed its latest injuries from the global crisis, saying it made 1 billion euros of writedowns in residential mortgage-backed securities and a further 500 million euros linked to monoline insurers which insure against bond defaults."

The mortgage paper debacle is the gift that keeps on giving. What investors would like to believe is that the news that Merrill Lynch (MER) dumped much of its toxic portfolio means that the flood of bad financial firm earnings will begin to recede.

Deutsche Bank’s management cautioned about the rest of the year. Just a few months ago, the firm was saying the the worst of the bad days were over.

The stocks of banks and brokerages will keep falling until someone from the companies begins to tell the truth. In a nutshell that is that no one knows when the current troubles will end, that earnings may be badly damaged for some time, and that raising new capital may become routine along with the attendant dilution.

Resetting expectations is the only way that financial shares can reach a bottom this year. A bottom needs to be based on the worst of things being put on the table. Any improvement from that can be the cause of a really rally in stock prices for the industry.

A recognition of the severity of the problem checkmates rumors and analyst predictions of economic Armageddon. And banking executives can walk away from the guilt of making ridiculous predictions

Douglas A. McIntyre.

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